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Monday, May 19, 2014

Driverless Cars, Telematics and Actuarial Science

As reported by Insurance Networking News: Fewer
accidents translate into lower insurance rates, and driverless car
technologies could lower rates by as much as $475 per year, according to
industry experts.

Driverless cars are on the
streets in California, Nevada, Michigan and elsewhere, and while they
are proving to cause fewer accidents than human drivers, there will
continue to be accidents and someone will be liable for them. However,
who will be responsible, and who will need insurance, is not yet clear.At the Casualty Actuarial Society’s Ratemaking and Product Management
seminar last month, industry experts discussed the implications of
driverless cars and insurance telematics in the presentation “Autonomous
Vehicles and the Impact on the Insurance Industry.” Presenters included
Robert Peterson, a professor of law at Santa Clara University, Frank
Douma, research fellow from the University of Minnesota, and Michael
Stienstra, FCAS, AVP at QBE North America.Human error contributes
to more than 90 percent of all auto accidents, but even as accidents
decline with consumer acceptance of the technology, there will continue
to be a need to insurance the cars, their owners and manufacturers, the
experts said.

Fewer accidents likely will means cheaper auto
insurance, Peterson said, adding that rates could decline as much as
$475 per year for operators of self-driving cars cheaper every year,
according to a study by Alain L. Kornhauser, professor of operations
research and financial engineering director, Transportation Program at
Princeton University.Many automakers say they will market
driverless cars by 2020, and Google says it will have a fully automated
car by 2017. Further, the costs may be lower than consumers may have
imagined. According to Raj Rajkumar, director of the Carnegie Mellon-GM
Autonomous Driving Collaborative Research Lab, quoted in the discussion,
an autonomous technology package could add $5,000 to $7,000 to the
sticker price.For actuaries, the flood of data coming from
driverless cars could be problematic. Stienstra said driverless cars
likely will transmit as much as 750 megabytes of data per minute, and
actuaries will have to cull the data before collecting it, and then find
the variables that predict accidents.Regulators also could
create hurdles, Peterson said, adding that California has mandatory
rating factors, including driving record and number of years as a
driver; and that safer drivers receive discounts. With an automated
vehicle, Peterson said those factors may prove irrelevant, and that
state insurance laws will likely need to be altered to accommodate
driverless cars.Driverless cars may be safer than traditional
cars, but flawed hardware or software could cause accidents, and
liability could then fall on manufacturers or installers, in which case,
the insurance pricing would fall to product liability actuaries for
coverage.

For a considerable time, there will be a mixture of
three types of cars, self-driving cars; partially automated cars, where
the owner does some or almost all the driving, and human driven cars,
Douma said. He described the five levels of vehicle automation, ranging
from no automation, level 0, to fully self-driving, level 4. Currently,
development efforts are aimed at level 3, where cars perform all
safety-critical functions under certain conditions. Drivers will be
alternating with computers for some time, Douma explains, as drivers
could back out of the garage and onto the street before handing control
to the computer, which could hand control back to the driver as they
approach their destination.Regulators, automakers and the public
will expect safer cars to translate into lower insurance premiums,
Stienstra said, and actuaries will need to be proactive on this issue,
noting that the Casualty Actuarial Society has an Automated Vehicles
Task Force to make sure casualty actuaries have the ability to partner
with engineers and researchers to properly understand and insure the
risks.TelematicsThe increasing
availability and consumer acceptance of insurance telematics, also
called usage-based insurance also has implications for insurers and
actuaries.In separate discussions, Jim Weiss, FCAS for ISO, Jerel
Cestkowski of American Family Insurance and Allen Greenberg, a senior
policy analyst at the U.S. Department of Transportation, addressed
telematics technology and implications for insurers and consumers.

When
drivers are aware that their behavior is being monitored, they may
drive more safely, Weiss said, adding that studies have found crash
rates fell between 20 and 30 percent in cars monitored by telematics
devices.Monitoring is not cheap, though. Weiss said telematics devices
currently cost about $100, last three years, and wireless communications
for each device costs about $5 a month.

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About Me

I have more than 25 years of experience in development, design, and mobile communications products and technology. I also enjoy skiing, hiking, scuba, tennis, reading, traveling, foreign languages, and painting. I'm an active member of the National Ski Patrol (NSP) and volunteer my time at either Loveland Ski resort, or Ski Cooper.